Michel Barnier, European Commissioner and the scourge of the financial services industry, is close to succumbing to a backlash against his plans to heavily regulate credit ratings agencies.

The Frenchman was behind proposals to force bond issuers to rotate credit rating agencies in a move that he believed would break the stranglehold of the big three: Moody's, Standard & Poor's, and Fitch.

As the man responsible for the bloc's internal market and services, Mr Barnier is perhaps the most significant of many politicians who believe that the agencies' failure to spot risks in banking performance was a major factor behind the global economic crisis. But, EU finance ministers, MEPs, and the UK financial services industry reacted with scorn to Mr Barnier's proposal. He wants to see the ratings agencies that companies and banks use to assess the strength of their bonds moved around every three to six years.

As companies tend to use two agencies on their bond issues, there are fears that this would simply mean replacing one with another of the big three, which have a hold on roughly 95 per cent of the market.

Mr Barnier believed that rotation would encourage the development of a second tier of agencies, but it is widely felt that few have the capabilities to evaluate more than a handful of extremely complicated bond issues. A market source described the proposal as "highly impractical".

Sharon Bowles, the Lib Dem MEP who chairs the European Parliament's powerful Economic and Monetary Affairs Committee, told The Independent on Sunday: "It looks as if the Commission and Ecofin [part of the EU Council] is moving away from rotation to something that is more relaxed."

With so much regulation going through the Council and Parliament, such as the Solvency II reforms to insurance company's capital requirements, it also seems likely the remainder of Mr Barnier reforms will be delayed. He had hoped that the complicated process, which includes getting a majority out of the political factions on Ms Bowles's committee which then brokers an inter-institutional agreement, would be completed before the summer recess. This now seems unlikely until the 2012-13 session.

Watering down the proposals will be a relief to the agencies, which have faced several reforms recently, including being forced to pay a percentage of turnover to cover the costs of the new regulator, the European Securities and Markets Authority.